It seems to be a law in the technology industry that leading companies eventually lose their positions — often quickly and brutally. Former mobile handset champion Nokia Oyj, one of Europe’s biggest technology success stories, was no exception, losing its market share in the space of just a few years. Can the industry’s new champions, Apple Inc and Google Inc — not to mention titans in other tech sectors — avoid Nokia’s fate?
In 2007, Nokia accounted for more than 40 percent of mobile handset sales worldwide. However, consumer preference was already shifting toward touch screen smartphones. With the introduction of Apple’s iPhone in the middle of that year, Nokia’s market share withered rapidly and revenue plummeted. By the end of last year, Nokia had sold its handset business to Microsoft Corp.
What sealed Nokia’s fate was a series of decisions made by Stephen Elop in his position as chief executive, which he assumed in October 2010. Each day that Elop spent at Nokia’s helm, the company’s market value declined by 18 million euros (US$23 million) — making him, by the numbers, one of the worst chief executives in history.
Illustration: Yusha
Elop’s biggest mistake was choosing Microsoft’s Windows Phone smartphone operating system as the only platform for Nokia’s smartphones. In his so-called “Burning Platform” memo, Elop compared Nokia to a person on a burning offshore oil rig, facing a fiery death or an uncertain leap into the frigid sea. He was right that business as usual meant certain death for Nokia; he was wrong to choose Microsoft as the company’s life raft.
Elop was not the only person at fault. Nokia’s board of directors resisted change, making it impossible for the company to adapt to rapid shifts in the industry. Most notably, then-Nokia chairman Jorma Ollila, who had led Nokia’s transition from an industrial conglomerate to a technology giant, was too enamored with the company’s previous success to recognize the change that was needed to sustain its competitiveness.
The company also embarked on a desperate cost-cutting program, which included slashing thousands of jobs. This contributed to the deterioration of the company’s once-spirited culture, which had motivated employees to take risks and make miracles. Good leaders left the company, taking Nokia’s sense of vision and direction with them. Not surprisingly, much of Nokia’s most valuable design and programming talent left as well.
However, the largest impediment to Nokia’s ability to create the kind of intuitive, user-friendly smartphone experiences that iPhones and Android devices offered was its refusal to move beyond the solutions that had driven its past success.
For example, Nokia initially claimed that it could not use the Android operating system without including Google applications on its phones. However, just before its takeover by Microsoft, Nokia built a line of Android-based devices called Nokia X that did not include Google apps, but instead used Nokia maps and Microsoft search.
Why did Nokia avoid Android? The short answer is money. Microsoft promised to pay billions of US dollars for Nokia to use Windows Phone exclusively. Given that Google gives away its Android software, it could not match this offer. However, Microsoft’s money could not save Nokia; it is not possible to build an industrial ecosystem with money alone.
Elop’s previous experience at Microsoft was undoubtedly also a factor. After all, in difficult situations, people often turn to what is familiar. In Elop’s case, the familiar just happened to be another sinking company. After hearing that Nokia had chosen Windows, then-Google executive Vic Gundotra tweeted: “Two turkeys do not make an eagle.”
Apple and Google should not rest easy. Like Nokia in the mobile handset industry — not to mention Microsoft and IBM in the computing industry — one day they will lose their leading positions. However, there are steps they can take to prolong their success.
First, companies must continue to innovate, in order to improve the chances that disruptive technologies emerge from within. If market leaders implement a system for discovering and nurturing new ideas — and create a culture in which employees are not afraid to make mistakes — they can remain on their industry’s cutting edge.
Second, major firms should keep track of emerging innovators. Instead of forming partnerships with smaller companies that suit their current business model, major firms should work with inventive startups with disruptive potential.
Finally, though successful companies must constantly innovate, they should not be afraid to imitate. If Nokia had immediately begun to develop products modeled after the iPhone, while addressing related patent issues effectively, the mobile device industry would look very different today.
Nokia’s experience also carries an important lesson for regulators, particularly in the EU. Attempting to quell disruptive technologies and protect existing companies through, for example, antitrust crusades, is not an option. Indeed, that approach would ultimately hurt the consumer, both by impeding technological progress and eliminating price competition — like that from Samsung Group’s Android devices, which forced Apple to lower iPhone prices.
Herein lies the most important lesson in Nokia’s fall. Technology companies cannot achieve success simply by pleasing their board of directors or even striking multimillion dollar deals with partners. Whichever company makes the consumer happy — whether a well-established multinational or a dynamic startup — will win. Companies that lose sight of that are doomed.
Pekka Nykanen and Merina Salminen are co-authors of the book Operation Elop, about Nokia’s rise and decline, which was published this month in Finland.
Copyright: Project Syndicate
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